Eutelsat Growth Slowed by Ka-band Saturation, DoD Downturn

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PARIS — Satellite fleet operator Eutelsat on May 12 said downward pressure on its U.S. Defense Department business is longer-lasting than expected and that the struggles of its Russian television customers is also weighing on results.

The company also said growth in subscribers from its large Ka-Sat Ka-band consumer broadband satellite was slowing as Ka-Sat’s beams over higih-demand regions in Britain, Ireland and France reach saturation.

The company said Ka-Sat had 180,000 active subscribers as of March 31, up just 5,000 from Dec. 31.

In a conference call with investors, Eutelsat management said it was taking steps to stimulate demand in other Ka-Sat coverage areas, especially among businesses, and that the company is actively seeking airline partners for an aeronautical broadband business.

Eutelsat has an agreement with broadband hardware and service provider ViaSat Inc. of Carlsbad, California, to combine the two companies’ broadband satellites to offer unbroken Ka-band coverage over North Atlantic air and sea routes once ViaSat’s ViaSat-2 satellite is launched in 2016.

Eutelsat CEO Michel de Rosen
Eutelsat CEO Michel de Rosen

In Europe, Eutelsat rival Inmarsat of London is actively developing an S-band aeronautical broadband solution. In the conference call, Eutelsat Chief Executive Michel de Rosen expressed confidence that a side-by-side comparison of the Eutelsat and Inmarsat offers would favor Eutelsat. But he did not detail any special initiatives to get to market before Inmarsat in 2016-2017.

The fact that Ka-Sat’s highest-demand beams are filling is not surprising. Ka-Sat, like its current counterparts in the United States operated by ViaSat and EchoStar Corp.’s Hughes Network Systems of Germantown, Maryland, has beams fixed over geographical areas. Capacity cannot be moved from low- to high-demand areas and all three companies are confronting the same issue.

But unlike ViaSat and Hughes, Eutelsat has not announced a follow-on satellite to permit its commercial service, called Tooway, to continue to grow. Eutelsat officials have said they have a strategy and are not going to let Tooway plateau, but they have declined to disclose details.

Paris-based Eutelsat is the world’s third-largest commercial satellite fleet operator by revenue. Eighty-four percent of its backlog, which stood at 6.4 billion euros ($6.9 billion at March 31 exchange rates), is for video applications, mainly in long-term contracts with broadcasters.

This business is growing. The number of television channels on Eutelsat’s fleet reached 5,747 as of March 31, up 10.3 percent from a year ago. Of these 11.7 percent were high-definition channels, compared to 10 percent last year.

The high ground of this core business gives Eutelsat confidence that, as it has forecast, it will average 4 percent for the current fiscal year ending June 30, and 5 percent, on average for the following two years.

But de Rosen and Deputy Chief Executive Michel Azibert cautioned that the forecast assumed no further degradation in the Russian market or in its U.S. government business.

The rising value of the U.S. dollar has helped Eutelsat’s government division, but when foreign exchange effects are removed from the results the business shrank by 0.5 percent, in the three months ending March 31 compared to a year ago.

Azibert said the most recent round of negotiations with the U.S. government ­ mainly the Defense Department ­ ended with a 90 percent renewal rate. But ongoing military budget pressures in the United States, coupled with the troop withdrawals from Afghanistan, cast doubt on whether this renewal rate can be repeated, he said.

Ironically, Eutelsat has been able to mitigate the drop in its government business by signing an actual Afghan customer. The Afghan Ministry of Communications booked capacity on the Eutelsat 48D satellite.

As is the case with competitors Intelsat, SES and Inmarsat, Eutelsat has been surprised by the duration of the U.S. government downturn in demand for commercial satellite capacity.

The struggle of Eutelsat’s customers in Russia continues to be an issue with the fall of the Russian ruble. Azibert said the company expects the revenue shortfall this fiscal year ­ ending June 30 ­ to be slightly less than 5 million euros. For the upcoming fiscal year, he said, it will be between 12 million and 15 million euros.

The revenue forecast depends in part on whether Eutelsat’s upcoming satellites are launched as planned. The company has four satellites yet to launch this year, plus a fifth in mid-2016 and a sixth in early calendar year 2017. The first four satellites will be adding more than 100 transponders for expansion in Europe, Latin America, Africa and the Middle East.